California Medical Cannabis Retailer Licensing Rules

This post is on California’s initial rules governing medical cannabis retailers as part of our ongoing series analyzing California’s initial medical cannabis rules pursuant to the Medical Cannabis Regulation and Safety Act (“MCRSA“). For information regarding the licensing rules for California cannabis manufacturers and cultivators, go here and here.

The MCRSA defines “dispensary” as “a facility where medical cannabis, medical cannabis products, or devices for the use of medical cannabis or medical cannabis products are offered, either individually or in any combination, for retail sale, including an establishment that delivers, pursuant to express authorization by local ordinance, medical cannabis and medical cannabis products as part of a retail sale.” There are two kinds of dispensary licenses under the MCRSA: Type 10 for a general dispensary and Type 10A, defined as just a “dispensary.”

The MCRSA restricts vertical integration of cannabis licenses by limiting applicants to one or two licenses in certain separate licensing categories (Governor Brown’s Trailer Bill will change this if it passes this summer). A Type 10 licensee can only be a retailer and until January 1, 2026, a Type 10A licensee can be a retailer at no more than three retail locations by holding three separate Type 10 licenses: that of a manufacturer and a cultivator (so long as the Type 10A license has no more than four acres of total canopy size of cultivation throughout the state).

In addition to the mandatory submissions for “owners” and their spouses we discuss here, California cannabis retailers must also submit a complete list of every individual with a non-controlling interest in the retailer, though there are no indications non-controlling interest holders will be vetted by the state in the same way “owners” will be.

Retail applicants must submit all of the following to the State of California as well:

A list of funds belonging to the retailer held in savings, checking, or other accounts maintained by a financial institution.

A list of investments made into the retailer entity.

A list of all gifts of any kind given to the retailer for its use in conducting commercial cannabis activity.

Whether an owner or their spouse has a financial interest in any other cannabis license. “Financial interest” means an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.

A list of all convictions (excepting juvenile crimes and traffic infractions under $300 that didn’t involve alcohol, controlled substances, or dangerous drugs) as well as a rehabilitation list for each conviction.

Application for fingerprints through the Department of Justice.

Documentation issued by the local jurisdiction in which the applicant proposes to operate certifying the applicant is in compliance with all local ordinances and regulations, or will be in compliance with all local ordinances and regulations by the time the Bureau issues a license.

Evidence that the proposed dispensary location is at least a 600-foot radius from any school. In addition, the retail premises must be in a contiguous area and may only be occupied by one licensee, and retailers cannot sublet any portion of the retail premises.

If you have 20 or more employees, an attestation that the applicant has entered into a labor peace agreement and you must provide a copy of that agreement.

A $5,000 surety bond.

A scaled diagram of the dispensary premises that shows “the boundaries of the property and the proposed premises to be licensed, showing all boundaries, dimensions, entrances and exits, interior partitions, walls, rooms, windows, doorways, and common or shared entryways. The diagram must show the areas in which all commercial cannabis activities will take place, including but not limited to, limited-access areas.”

A list of your quality assurance, security, and inventory practices.

Proof of acknowledgement from the dispensary property owner that you can use the property for dispensing and a copy of your lease agreement if you have it. Or if you own the property, provide the deed.

Regarding retailer operational standards, the retailer is responsible for sufficiently tracking and tracing all of its inventory and for record keeping — certain records must be kept for at least seven years. The retailer must also follow all security, surveillance (including installation of 24-hour recording cameras of a certain pixellation that covers certain areas of the operation by a specific number of feet), alarm, and premises access requirements. The retailer is also responsible for cannabis waste-management destruction and disposal. And though California cannabis retailers cannot package or label any cannabis goods, they still must provide “exit packaging” for products, which basically means re-sealable and opaque child resistant packaging. And if a retailer discovers any defective product, it may return the medical cannabis goods only in exchange for a non-defective version of the same medical cannabis goods. So, no cash refunds.

As far as customers go, between the hours of 6 a.m. to 9 p.m., only verified qualified patients or primary caregivers over 18 can freely shop in the dispensary. Nonetheless, anybody younger than 18 can enter the dispensary to purchase medical cannabis goods if they are a medical cannabis patient accompanied by their parent, legal guardian, or primary caregiver. Customers are free to inspect medical cannabis goods through secured containers, but no sampling is allowed. A customer purchase no more than 8 ounces in a single day, unless their physician’s recommendation authorizes more.

Under the MCRSA, “delivery” means “the commercial transfer of medical cannabis or medical cannabis products from a dispensary, up to an amount determined by the bureau to a primary caregiver or qualified patient . . . or a testing laboratory.” “Delivery” also includes “the use by a dispensary of any technology platform owned and controlled by the dispensary . . . that enables qualified patients or primary caregivers to arrange for or facilitate the commercial transfer by a licensed dispensary of medical cannabis or medical cannabis products.” So long as city or county law allows for delivery, dispensaries must deliver all product themselves; they cannot use a third party contractor or courier to do it. All deliveries must be done in person by a retail employee who’s at least 21, and all deliveries have to go to physical addresses in California. When making deliveries, dispensary employees cannot carry more than $3,000-worth of cannabis goods at any time. No delivery can be made to an address on “publicly owned land or any address on land or in a building leased by a public agency.” Finally, delivery hours are from 6 a.m. to 9 p.m.

These rules are currently in a 45-day comment period and are by no means final. So, stay tuned to see if and when the Bureau makes additional changes. I am sure these rules seem onerous to many of you, and they are. But for what it is worth, they are in many respects very similar to the laws in various other states where we have helped our clients secure cannabis licenses — Oregon, Washington, Colorado, Nevada and Alaska, for instance — and so as difficult as they may seem, it is certainly possible to satisfy them.

Since joining Harris Bricken in 2010, Hilary has earned a reputation as a fearless advocate for local businesses. Hilary’s clients—start-ups, entrepreneurs, and companies in all stages of development—value her bold approach to business strategy.

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About this Blog

The Canna Law Blog is a forum for discussion about the practical aspects of cannabis law and how it impacts those involved in this growing industry. We will provide insight into how canna businesspeople can use the law to their advantage…

Disclaimer

Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, much less lead you to believe that marijuana is legal under federal law. Please also note that even though marijuana is illegal under federal law, you will need to pay federal taxes just as though you are a legal entity. This is true even if you are a state law not-for-profit entity.

The Canna Law Group is a team of business attorneys focusing on the corporate, compliance, intellectual property, and consumer product issues impacting the cannabis industry. We represent medical and recreational businesses in multiple states, and we continue to offer our clients the proactive approach and strategic edge that this unique industry demands.